February 23, 2010

 

US Wheat Outlook on Tuesday: Seen down in turnaround Tuesday scenario

 

 

U.S. wheat futures are poised to start lower Tuesday in a retreat from gains Monday and should keep an eye on neighboring markets for direction, traders said.

 

Chicago Board of Trade May wheat is called to open 4 to 6 cents per bushel lower. In overnight electronic trading, CBOT May wheat slid 4 3/4 cents, or 0.9%, to US$5.10 1/2.

 

The markets will likely see a "Turnaround Tuesday" scenario amid ideas they are due for a correction after Monday's advances, traders said. The rallies are seen as overdone and were not supported by fundamental factors.

 

"We're giving back some gains," a trader said.

 

Wheat will be a follower of CBOT corn and soybeans after rising Monday on spillover buying from the neighboring markets, a trader said. The grains and soybeans are linked because funds often trade in a basket of commodities and because corn and wheat are both used for animal feed. Funds were buyers of grains and soybeans Monday, and traders are waiting to see whether they reappear Tuesday.

 

The supply and demand storyline for wheat is seen as unsupportive because there is plenty of supply to go around in the world and stiff competition for export business. There is no fresh news out Tuesday to change the fundamental outlook of the markets, a CBOT trader said.

 

Japan, one of Asia's major wheat importers, said it won't issue any more of its routine tenders for wheat this month because it has covered most of its requirements through April. The break in buying shouldn't impact markets because Japanese demand is seen as inelastic and it has the money to pay for good quality wheat, a trader said.

 

Prices could find some support from short-covering because non-commercial speculative funds are still "heavily short" in CBOT wheat, a trader said. The funds, which follow trends in the market, loaded up on short positions during the past six weeks as prices sank and a downtrend developed on the technical chart.

 

The funds' massive short position is "dangerous" because short-covering rallies would be sharp and short-lived, a trader said. Market participants don't want to get caught on the wrong side of a rally if prices start to climb, he said.

 

The next downside price objective for bears is pushing and closing CBOT May wheat below solid technical support at the February low of US$4.80 3/4, a technical analyst said. The bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.40, he said.

 

First resistance is seen at Monday's high of US$5.17 3/4 and then at US$5.25, the analyst said. First support lies at US$5.10 and then at US$5.00, he said.